EBITDA, and the adjustment most owners never make
What the measure is, why every buyer uses it, and how normalising it changes what your business is worth.
The profit on your accounts is almost certainly not the profit a buyer will price. EBITDA is earnings before interest, tax, depreciation and amortisation. In plain terms, it is what the business earns from trading, before the effects of how it is financed, where it is taxed, and how its past spending on equipment is being written off.
Buyers use it because it lets them compare your business against another one with different debt, a different tax position and a different history of buying machinery. Take those out and what remains is the thing they are actually purchasing, which is the trading performance.
The part that matters most to you is not the definition. It is normalisation. Your EBITDA as reported is almost certainly lower than your EBITDA as a buyer would calculate it, because your accounts reflect how you choose to run your own affairs. Most owners have never made this adjustment, and most owners therefore undervalue their business by a material amount.
The four letters, one at a time
- Interest. How the business is financed is the buyer's decision, not yours. They may repay your loans at completion or refinance the whole thing on their own terms. So the cost of your borrowing is taken out.
- Tax. Depends on your structure, your country and your own planning. The buyer will have different ones. Taken out.
- Depreciation. The accounting spread of money you spent on equipment in earlier years. It is a real cost eventually, but it is not this year's cash. Taken out, with an important caveat below.
- Amortisation. The same idea applied to things you cannot touch. Goodwill from an earlier acquisition, software, a purchased customer list.
Why buyers price on it
Two businesses earn the same operating profit. One is owned outright and carries no debt. The other borrowed heavily three years ago to buy its premises. Their statutory profits look very different, and neither difference tells a buyer anything about the trading.
EBITDA puts them on the same footing. That is its entire purpose. It is not a measure of how much money the business makes, and it was never intended to be one. It is a comparison tool, and it is the tool the market has settled on.
It matters practically because the multiple you get quoted is quoted against this measure. When somebody says a business like yours trades at six times, they mean six times normalised EBITDA. Applying that multiple to your statutory operating profit will give you the wrong answer, and usually a materially lower one.
Normalisation, which is where the money is
Normalising means restating your profit as it would look for a new owner running the business in an ordinary way. Your accounts do not show that, because they show your business run by you, with your salary, your car, your building and your unusual year.
There is one test, and every buyer applies it. Would this cost still exist next year, under a new owner, running the business normally. If the answer is no, it comes back. If the answer is yes, it stays in.
A distribution business turning over €4,000,000, owned and run by one person for nineteen years.
A worked normalisation| Operating profit per the accounts | €420,000 | |
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| Owner salary above market rate | €60,000 | You take €150,000. A hired general manager doing your job costs €90,000 in your market. Only the excess comes back. |
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| Spouse on the payroll, not working in the business | €28,000 | A common and entirely legal arrangement. It is not a cost the buyer inherits. |
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| One off legal and settlement costs | €35,000 | An employment dispute that concluded last year. Needs the settlement agreement as evidence. |
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| Personal costs through the company | €25,000 | The car, the phone, the conference that was mostly a holiday. |
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| Market rent you do not currently charge | -€45,000 | You own the building personally and let the company use it for nothing. The buyer will pay rent from day one, so this is a deduction, not an add back. |
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| Recruitment costs for a role now permanently filled | €12,000 | Only if you can show it will not recur. If you replace that role every two years, it stays in. |
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| Normalised EBITDA | €535,000 | |
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Reported €420,000. Normalised €535,000. At a multiple of 6.5 that difference is worth €747,500 of enterprise value, and every euro of it came from documents you already have in a filing cabinet.
That is the point of this page. The work is not clever and it is not aggressive. It is the ordinary business of presenting your profit the way the market measures it. An owner who skips it is not being conservative. They are simply being paid less for the same company.
What a buyer will refuse, and why it matters more than you think
Optimistic add backs are the fastest way to lose credibility in a process, and credibility is worth more than the add back was.
These will be struck out
- Revenue you did not win. A contract you were shortlisted for is not profit.
- Costs you intend to cut but have not cut. If the saving were straightforward, the buyer's question is why you have not already made it.
- A salary reduction you have not implemented. Taking less next year is a plan, not a fact.
- One off costs that have occurred in each of the last three years. At that point they are simply costs, and claiming them damages everything else on your list.
- Anything you cannot evidence. An add back with no document behind it is worse than one you never claimed, because it makes the buyer reopen the ones that were real.
Every legitimate adjustment has a document behind it. An invoice, a payroll record, a settlement agreement, a market salary benchmark, a lease. Assemble those before you present the number rather than after a buyer asks, because the gap between the claim and the evidence is where trust is lost.
A short and fully evidenced list of adjustments survives due diligence. A long and partly speculative one gets renegotiated in month four, when you have far less leverage than you have today.
That renegotiation in month four is what due diligence actually feels like from the seller's side, and it has a guide of its own. Due diligence, from the seller's side
EBITDA is not cash
A business can report healthy EBITDA and still be unable to pay its suppliers. This is not unusual and it is not fraud. EBITDA is measured before the money spent on equipment, before tax, before interest, and before the cash swallowed by growing debtors and stock.
Buyers know this, which is why the EBITDA multiple is not the end of the conversation. What they are really trying to work out is how much of your EBITDA turns into money they can actually take out. A business converting most of it is a different asset from one converting half of it, at identical EBITDA.
How much of your profit becomes cash, and what working capital does to the price you are paid at completion, is the subject of the next guide. Cash flow and working capital
The multiples are quoted against this number
The Argos Mid-Market Index is a quarterly index published by Argos Wityu, a European private equity firm, with Epsilon Research. It tracks what buyers actually paid for mid sized European businesses.
In Q1 2026, the overall median was 8.6×. Trade buyers paid a median of 7.8×, while investment funds paid a median of 10.0×.
Scope: eurozone UNLISTED companies, equity value €15M to €500M, majority-stake acquisitions, six-month rolling median.
EXPLICIT EXCLUSIONS: financial services, real estate, and high-tech / technology sectors are not included in the Argos Index universe.
Read the source from Argos Wityu / Epsilon Research
Whenever you see a multiple quoted, including the ones above, it is a multiple of normalised EBITDA rather than of the profit in a set of statutory accounts. Comparing your unadjusted profit against a published multiple is the most common arithmetic mistake owners make about their own business, and it always errs in the same direction.
See your normalised number
Our valuation asks for the adjustments directly, because they are the difference between a number that reflects your business and a number that reflects your tax planning.
It is free and takes about ten minutes. You will get a range built on normalised profit, with the adjustments shown separately so you can see exactly what each one was worth.
Step one of three: see your number, free, with no account and no name.
See what it's worth